Computer Associates 2005 Annual Report Download - page 109

Table of Contents
Note 1 — Significant Accounting Policies
Description of Business: Computer Associates International, Inc. and subsidiaries (the Company) designs, develops, markets, licenses,
and supports a wide range of integrated management computer software products.
Principles of Consolidation: The Consolidated Financial Statements include the accounts of the Company and its majority-owned and
controlled subsidiaries. Investments in affiliates owned 50% or less are accounted for by the equity method and include gross
unconsolidated liabilities of approximately $2 million. Intercompany balances and transactions have been eliminated in consolidation.
ACCPAC Divestiture: As more fully described in Note 2, “Acquisitions, Divestitures, and Restructuring,” in fiscal year 2004, the
Company divested its subsidiary, ACCPAC International, Inc. (ACCPAC). The assets, liabilities, results of operations, and cash flows of
ACCPAC have been classified as a discontinued operation for all periods presented prior to the sale of ACCPAC in March 2004. All
related footnotes to the Consolidated Financial Statements have been adjusted to exclude the effect of the ACCPAC discontinued
operation.
Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles in the United
States of America (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based on management’ s knowledge of current events and actions it
may undertake in the future, these estimates may ultimately differ from actual results.
Translation of Foreign Currencies: Foreign currency assets and liabilities of the Company’ s international subsidiaries are translated
using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average exchange rates
prevailing throughout the year. The effects of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S.
dollars are accumulated as part of the foreign currency translation adjustment in Stockholders’ Equity. Gains and losses from foreign
currency transactions are included in the “Other gains/expenses, net” line item on the Consolidated Statements of Operations in the
period in which they occur. Net income (loss) includes exchange transaction losses, net of taxes, of approximately $5 million,
$26 million, and $42 million in the fiscal years ended March 31, 2005, 2004, and 2003, respectively.
Statements of Cash Flows: The Company considers all highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents. Interest payments for the fiscal years ended March 31, 2005, 2004, and 2003 were $120 million, $137 million,
and $186 million, respectively. Income taxes paid for these fiscal years were $12 million (net of a tax refund of $191 million),
$423 million, and $320 million, respectively. The decrease in taxes paid during fiscal year 2005 was primarily attributable to a new
Internal Revenue Service (IRS) Revenue Procedure, which grants taxpayers a twelve month deferral for cash received from customers to
the extent such receipts were not recognized in revenue for financial statement purposes.
Non-cash investing and financing activities are excluded from the consolidated statement of cash flows. For fiscal year 2005, non-cash
activities included the conversion of the $660 million outstanding 5% Convertible Senior Notes into common stock. Refer to Note 6,
“Debt” of the Consolidated Financial Statements for additional information.
Basis of Revenue Recognition: The Company generates revenue from the following primary sources: (1) licensing software products;
(2) providing customer technical support (referred to as maintenance); and (3) providing professional services, such as consulting and
education.
The Company recognizes revenue pursuant to the requirements of Statement of Position (SOP) 97-2, “Software Revenue Recognition,”
issued by the American Institute of Certified Public Accountants, as amended by SOP 98-9 “Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions.” In accordance with SOP 97-2, the Company begins to recognize revenue
from licensing and supporting its software products when all of the following criteria are met: (1) the Company has evidence of an
arrangement with a customer; (2) the Company delivers the products; (3) license agreement terms are deemed fixed or determinable and
free of contingencies or uncertainties that may alter the agreement such that it may not be complete and final; and (4) collection is
probable.
The Company’ s software licenses generally do not include acceptance provisions. An acceptance provision allows a customer to test the
software for a defined period of time before committing to license the software. If a license agreement includes an acceptance provision
and uncertainty exists about customer acceptance, the Company does not record deferred subscription revenue or recognize revenue
until the earlier of the receipt of a written customer acceptance or, if not notified by the customer to cancel the license agreement, the
expiration of the acceptance period.
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